Profitability of L&T Housing Finance may stay low: Icra

Rating for long term loans upgraded to "AA" from "BBB"

L&T Housing Finance Limited’s (L&T HFC) profitability is likely to remain low due to higher operating expenses in the medium term, according to credit rating agency Icra.

“The projected interest spreads are likely to remain adequate at around three per cent in the medium term. But, the high operating expenses in the first three years of operations starting FY13, are likely to keep profitability low in the medium term,” Icra said in a rating report. “The good capitalisation and support from the parent would remain the key rating drivers till the time the company stabilises operations. The company has hired talent from the industry, which will help to execute its business plan in an organised manner,” Icra added.

In October 2012, L&T Financial Holdings Ltd, the holding company of L&T group’s financial businesses, acquired Indo Pacific Housing Finance Ltd. It was renamed L&T HFC in December 2012.

Icra revised the rating for HFC’s long term credit to “AA” from “BBB” following acquisition. The rating upgrades factors in the expected capital funding, management, systems and infrastructure support from the parent company.

Icra expects the company to be adequately capitalised in relation to its growth plans over the medium term.

The ratings are constrained by the startup nature of operations, average risk profile of the target segment, including builder financing book.